Speaker A
Students dressed as sharks gathered outside Parliament.
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Speaker A
Their protest was against the latest changes to student loans in England.
Speaker A
There are growing calls for a redesign of the student loan system.
Speaker B
The debt is going up as fast as the payments are going in, it's just horrible, horrible to see that.
Speaker A
It's frightening if you're trying to get a loan to go down.
Speaker B
It's not like a mortgage where my payments are fixed every month, it's a payment that is dependent on how much I'm earning.
Speaker B
You have to get back to, is this system fair?
Speaker A
Hello, I'm Sarah Montague from The World at One.
Speaker B
And I'm Evan Davis from the PM program.
Speaker A
Now Evan, look, this whole thing.
Speaker A
We are, I mean, it's obvious really, it's fiendishly complicated.
Speaker B
Yes.
Speaker A
We're going to have to talk, I mean there are so many different plans.
Speaker A
But in a way, I thought one of the things that just illustrates the problem for me was the example of the case of Martha.
Speaker A
Martha is our colleague who pulled together this research for us.
Speaker A
And I was saying, I want an example.
Speaker A
And she said, use me.
Speaker A
In her case.
Speaker A
She graduated in 2018, she had a loan of 27,000.
Speaker A
Which was just the tuition.
Speaker A
In 2021, she hit the threshold for paying it off.
Speaker A
Last week she checked and she now owes 35,000.
Speaker A
Now that's just one example for so many students that you see.
Speaker A
That their situation is so much worse.
Speaker B
So what we have in this country, and we've got two different systems.
Speaker B
There's the Plan 2 system, so called, that applied for people starting in England up to 2022.
Speaker B
So the people have just graduated.
Speaker B
And the new Plan 5 system, which is slightly different and been been been been tweaked quite significantly.
Speaker A
Which is from 2023.
Speaker B
Which is, which is from the, the more recent graduates.
Speaker A
Now Martha is on Plan 2, and that's where you get, uh, it's, it's a, it's a sliding scale depending on your income.
Speaker A
But broadly RPI plus 3%.
Speaker B
Correct.
Speaker A
After 30 years, it gets written off.
Speaker B
Correct.
Speaker A
The Plan 5, which is the more recent adjustment, you're actually only playing RPI.
Speaker B
Lower rate of interest, but 40 years.
Speaker A
40, yeah.
Speaker B
More people will pay off Plan 5 than pay off Plan, Plan 2.
Speaker B
Um, so they've gone to a system that is just a little bit more like a loan.
Speaker B
Because for people who are going to pay it off, it operates more like a loan.
Speaker B
For people who are never going to pay it off, it's more like a, it is more like a tax, if you see what I mean.
Speaker B
But the government is not coining it in from the overall loan system.
Speaker B
So these are the, the key facts.
Speaker B
The government's not making a lot of money out of it.
Speaker B
Or sometimes might make a bit and sometimes not.
Speaker B
But richer students, those who are earning more, have been subsidizing within the loan system the less well-off students.
Speaker B
Because in order to make the loan system not a a massive loss maker for government.
Speaker B
Given that a sizable number of students are never paying the loans back in full.
Speaker B
You've been making money out of richer students.
Speaker B
So the distribution in the system has been from richer graduates to poorer graduates.
Speaker B
And that has meant that the university system overall, if you like, the loan system pays for itself.
Speaker B
More or less.
Speaker B
But some people are paying more than they should.
Speaker B
They're paying more than a loan would be.
Speaker A
But it's, it is worth saying just two things.
Speaker A
First of all, it's expected that about half of graduates will pay off their loan.
Speaker A
And when you talk about richer, of course, the richest don't even need to take it out in the first place.
Speaker A
So they do rather well.
Speaker B
They, they, their parents or they pay it out of their savings.
Speaker B
They give up those savings, they give up the interest they would be making on those savings.
Speaker B
So there's a cost to them, but they don't have to go through all the hassle.
Speaker A
But it is also the case that it's the, it's the sort of middle of the earning group who are actually paying more over their lifetime of earnings.
Speaker A
They get particularly hard, rather than those who end up doing very well.
Speaker A
Earning a lot.
Speaker B
Right.
Speaker A
They don't pay so much.
Speaker B
Here's the, here's how it works.
Speaker B
The poorer graduates are subsidized because they're never going to pay the loan back.
Speaker B
The very rich graduates who never take out a loan don't have to worry about it, they just pay their fees and and and they borrow it from their parents or whatever.
Speaker B
The richer graduates on the loan system, often they will pay it back.
Speaker B
And they might even pay it back quite quickly, in which case they're not burdened with heavy interest payments.
Speaker B
That are kind of subsidizing the system.
Speaker B
The, the sort of middle upper middle graduates are the ones who are, as their, as a proportion of their lifetime earnings.
Speaker B
Are often paying more than than than others.
Speaker A
Than at either end.
Speaker B
And they're the ones who feel aggrieved.
Speaker B
Now, in terms of the proportion of your lifetime earnings that you'll be paying back to the government on these loan schemes.
Speaker B
Is something like two, two and a half percent of your lifetime earnings.
Speaker B
That's the cost of doing a degree.
Speaker A
And of course, doing a degree should earn you more.
Speaker B
And you should be earning more.
Speaker B
Now, here's the question.
Speaker B
I think this is the fundamental question about social justice of the loan scheme.
Speaker B
Do we want the university system to be paid for by people who go to university?
Speaker B
More or less, via a loan scheme that tries to break even.
Speaker B
Or do we want richer graduates to pay for themselves and their costs?
Speaker B
And for the overall tax system to pay for the poorer graduates.
Speaker B
So at the moment, richer graduates are subsidizing poorer graduates.
Speaker A
Yeah.
Speaker B
Do we want richer graduates to be, if you like, given not only having to pay for their university education.
Speaker B
But pay a bit more so that the system is kind of breaking even.
Speaker B
That I think is the, the fundamental question.
Speaker B
And it is richer graduates or the sort of upper middle who are saying, this is, I'm being stung.
Speaker B
And I, I feel I'm paying more than I really should for the education I got.
Speaker B
And for the, the costs I've incurred.
Speaker B
So, so that's a really big.
Speaker A
I mean, I, I would stress it, I, I think it is the middle who are getting hit particularly hard.
Speaker A
Rather than when you say richer, you mean.
Speaker B
Well, I, I, yeah, the, the, the, yeah, the middle.
Speaker A
And yeah.
Speaker A
I mentioned the loan sharks outside Parliament, the sort of sharks with the Rachel Reeves faces.
Speaker A
The protesters.
Speaker A
What they're angry about is the Chancellor's decision to freeze the threshold.
Speaker A
So that the point at which you have to start paying 9% of your earnings kicks in earlier.
Speaker A
That does look like she might have to move on that.
Speaker A
I mean, that could be another U-turn.
Speaker B
That could be a U-turn.
Speaker B
That is, it's made a lot of graduates very angry.
Speaker B
And it, if you were running a mortgage loan scheme, you wouldn't be allowed to change the terms retrospectively like that.
Speaker B
It's, you could say she's.
Speaker B
The loans have been mis-sold because you're not allowed to change terms of loans.
Speaker B
After you've, after people have taken them out.
Speaker B
On the other hand, we come back to this is not really a loan scheme.
Speaker B
This is a hybrid loan tax scheme.
Speaker B
And governments change taxes all the time.
Speaker B
And and and take money from people.
Speaker A
These are.
Speaker B
These are decisions that are going to cost over the lifetime of these graduates.
Speaker B
Probably several thousand pounds.
Speaker A
But isn't there an argument that there's a sort of mis-selling here, because if you take out a loan when you go to university.
Speaker A
And you have certain expectations of it.
Speaker A
If the deals then keep changing, that would affect the decision that you took.
Speaker A
And you're going to be pursued if you say, actually, do you know what?
Speaker A
I'm not going to pay.
Speaker B
Yeah, no, there, there is an argument.
Speaker B
That that that it's mis-selling.
Speaker B
On the other hand, I mean, the 18-year-olds going to university.
Speaker B
Won't be reading the, the, the sub-clauses.
Speaker A
Anyway.
Speaker B
It is said in the, in the conditions of the loan that the terms that they may, they, they reserve the right to change the, to change the terms.
Speaker B
To tinker with the terms, I think it would, you know, ideally you wouldn't be tinkering with the terms.
Speaker B
There would be a stability so people could make informed choices about the, about what they want.
Speaker B
But you have to remember that one of the things about our loan scheme, as opposed to offering people mortgage type loans.
Speaker B
With fixed payment terms.
Speaker B
Um, one of the things about our loan scheme, which has got this very tax-based thing in it.
Speaker B
Is one of the things you don't know when you go to university is whether you're going to be a rich graduate or a poor graduate.
Speaker B
You don't know what your earnings are going to be.
Speaker B
And so there's an insurance system built into our loan scheme.
Speaker B
If you are a graduate and you don't make money out of being a graduate.
Speaker B
You're not going to be shouldered with the burden of the, of the loan.
Speaker A
The amount of people you will have had this saying, if I can find a way to pay off my student debt, should I do it now?
Speaker A
And it's an impossible question to answer.
Speaker B
A really difficult question.
Speaker A
Because it depends on the individual and what is going to happen to them in the decades ahead.
Speaker A
In terms of earnings.
Speaker B
Exactly, if your earnings are going to collapse for reasons that you don't know about yet.
Speaker B
You'll probably regret having put some money in.
Speaker B
Because you're never going to pay it off.
Speaker B
So if you're never going to pay it off and you're throwing money at this thing.
Speaker B
You're just putting money into reducing the amount of subsidy you get from the government.
Speaker B
No point in doing.
Speaker B
No, it's a really complicated calculation.
